Cost & Coverage
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Your life insurance coverage will lapse if you stop paying your premiums
All insurers offer a grace period of 30 days that prevents your policy from lapsing immediately after the first missed payment
It’s possible to reinstate your policy after the grace period, but you may be subject to additional fees and, in some cases, new underwriting
When you take out a life insurance policy, you agree to pay either a monthly or annual premium to keep the policy active. If, for whatever reason, you stop paying those premiums, your policy will lapse, which simply means that you lose your insurance coverage.
Fortunately, a policy lapse won’t happen immediately after one missed payment. All insurance carriers have a grace period, usually around 30 days, which allows your policy to stay in force temporarily. But you’ll need to resume payments before the end of the grace period to avoid terminating your coverage.
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It’s easy to miss a single premium payment: maybe your address or banking information changed, and you forgot to let your insurance company know. Or maybe money’s been tight and you can’t afford your monthly premium. Whatever the reason, your policy will stay active after one missed payment thanks to the insurance company’s grace period.
Every state’s department of insurance requires life insurance companies to provide a grace period when a premium payment is late or missed. That grace period is usually 30 or 31 days (but varies from carrier to carrier) and begins the day that a payment is due and isn’t received.
During the grace period, you’re still fully covered by your policy, meaning that if you were to die during this time, your insurance company would still pay out the death benefit to your beneficiaries. But if you want to keep your coverage, you’ll need to pay your missed premium before the grace period ends. Depending on your insurer’s guidelines, you may also have to pay a late fee.
If you’re the owner of a term life insurance policy and you haven’t paid your premium by the end of your insurer’s grace period, your policy will lapse and you’ll lose your life insurance coverage. If you die after your policy has lapsed, your beneficiaries won’t receive the death benefit, no matter how much you’ve previously paid in premiums.
Most cash value life insurance policies, such as whole life, include a feature called automatic premium loan. This simply means that your insurer will use your policy’s cash value to pay your premium if you miss a payment and the grace period ends.
However, if there isn’t enough cash value built up to cover your premiums — or if you deplete it by continuing not to make payments — your policy will lapse.
With any type of life insurance, your insurer is required by law to inform you when your policy is in danger of lapsing, and then again when it has officially lapsed, so you should receive multiple notices if you’re about to lose coverage.
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If you still haven’t paid your premiums by the time your insurance carrier’s grace period ends, your policy has officially lapsed and you no longer have life insurance coverage. At this point, you’ll have to contact your insurer to reinstate your policy, a process that varies from carrier to carrier.
“Every carrier tends to have different guidelines for reinstating policies, and reinstatement is often a case-by-case basis depending on the situation,” says Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner at Policygenius. “Applying for reinstatement of a policy might involve signing a document stating that your health has not changed. In addition, you will need to pay backdated premiums to the date that the policy lapsed.”
Depending on your insurer, how long your policy has been lapsed, and whether you had any red flags in your medical history when you first applied for life insurance, reinstatement might also require new underwriting. Some companies won’t require new underwriting if the policy has been inactive for less than 6 months; others may require only a limited underwriting process.
Despite these extra steps, it’s worth doing what you can to reinstate an existing policy that has lapsed rather than taking out a new one. The reason is that your rates are very likely to be higher if you apply for a new policy, because you’ll be older than you were when you last applied for insurance, and may have new medical conditions.
There are a few simple steps that can help you avoid missing a premium payment and jeopardizing your life insurance coverage:
Most insurance companies offer automatic bank drafts for payments. Since life insurance probably isn’t the first thing on your mind every month, automating your premium payments can help you stay on top of them.
You can also consider switching your payments from monthly to annual. In many cases, paying annually can reduce the hassle of having to remember to make a monthly payment. Furthermore, most insurance companies offer a discount, usually between 2% and 8%, for paying annually instead of monthly.
But the most important thing, of course, is paying on time, so be sure to choose the payment method that fits best with your lifestyle and budget.
Most insurance carriers offer a waiver of premium rider — also called a disability income rider — that exempts you from paying premiums in the event that you incur a serious disability and can’t work.
The waiver of premium rider allows you to keep your same insurance policy even if you lose your income due to disability. Most insurers also offer this rider at a very low cost: Depending on your insurer and your premiums, adding a waiver of premium rider could cost as little as a few dollars each month.
If you’re having trouble paying your premiums, consider asking the beneficiary of the policy to help cover part or all of the cost. Of course, in many cases, your beneficiary won’t be in a position to help, but if they are, then it’s worth asking, rather than risking a policy lapse. After all, the life insurance policy is in place to create a financial safety net for them.
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